Indian banks cautioned on risks in e-banking

Elaborating the various facets of e-banking, the RBI report on 'Trend and Progress of Banking in India for the year 2001-02', said that the innovations in information technology and telecommunications had significantly transformed banking services relating to new product development, speed of transaction processing and reduction in transaction costs, rediff.com reported.

It compels banks to offer a broad range of deposits, expand the geographical reach through new market penetration, introduce credit and investment products through diverse distribution channels.

However, despite its advantages, the report said, reliance on such technology often exacerbates traditional risks such as operational hazards, reputational and legal risks besides other risks related to business and credit offerings.

Another source of concern related to e-banking transactions was the emergence of the 'digital divide' in the access to banking services.

e-banking and other IT-related innovations in the financial are knowledge intensive tends to favour the more educated participants that too at the cost of ignoring the relatively less privileged sections, it said.

In India, e-banking has not been able to make significant inroads as an independent mode of banking due to psychological, technological and socio-economic factors, it said.

There were the additional hurdles relating to infrastructural and legal constraints, it observed.

The channel of distribution, though promising, was unlikely to threaten traditional distribution channels in the immediate future, the report added.